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Alaska Democrats can’t see past obsession with oil taxes

  • Author: Paul Jenkins
    | Opinion
  • Updated: January 28, 2018
  • Published January 28, 2018

It is as if Alaska's political left cannot — absolutely will not — shed its cut-your-nose-off-to-spite-your-face hatred of the oil industry no matter its corrosive effect on the state and its future.

The industry, the left believes, is a cash cow that can be milked willy-nilly and without consequence whenever our betters decide Alaska's bloated government needs even more cash. In fact, the industry is the left's go-to revenue fix, even before it begins thinking about shaking down ordinary Alaskans or fishing loose change from beneath sofa cushions.

It does not seem to matter that the mean ol' oil industry already carries the state on its back — a $180 billion return on our resources since statehood — or that the dismal science of economics would tend to make you believe taxing more sometimes gets you less. It does not seem to matter that there have been seven significant oil and gas tax law changes in the past dozen or so years. After all, who really needs fiscal stability or certainty in a business that plans and invests years ahead?

Unfortunately, less-than-stellar oil prices and dwindling state savings accounts again have Democrats eyeballing the industry. Alaska is running a budget deficit of about $2.5 billion, the North Slope has shed jobs, unemployment is higher here than most other places across the nation and the state is in a recession.

Add to that, Gov. Bill Walker and the Legislature have snatched about $1.4 billion out of the economy by slashing the Permanent Fund dividend in half — twice — and leaving the money in the Permanent Fund Earnings Reserve.

Walker also has delayed almost $1 billion in state-mandated oil tax incentive payments to the industry, payments aimed at increasing exploration and production. That, despite a potentially huge discovery announced by Caelus Energy. The company held up drilling an appraisal well at its Smith Bay find, citing $75 million in delayed oil tax incentive payments and uncertainty over Alaska's oil tax system.

Against that backdrop, what is the Democrat-led House up to? Why, what else? House Resources Co-Chair Geran Tarr, D-Anchorage, wants to almost double the minimum tax rate on oil, increasing it to 7 percent from its current 4 percent.

Anchorage Democratic Rep. Geran Tarr speaks during floor debate April 10, 2017 at the Capitol in Juneau. (Nathaniel Herz / ADN)

It is not her first oil tax rodeo. She and House Resources Co-Chair Andy Josephson last year ponied up House Bill 111, which rolled back tax credits companies get when they make new investments, making it tougher for small companies to do business here, and credits are paid only after a company begins production. The industry called it ill-conceived.

This year, Tarr is calling her proposed tax increase a "conversation starter."

It is as if Democrats cannot remember the fallout from Sarah Palin's wrong-headed Alaska's Clear and Equitable Share oil tax, adopted in 2007. North Slope producers, faced with the punitive levy, simply invested elsewhere, leaving Alaska scraping for pennies while oil provinces elsewhere were experiencing booms.

ACES' predatory taxing provisions derailed major companies' Alaska investment for new North Slope oil. The state was no longer a player. Production slid. Throughput in the trans-Alaska oil pipeline — the state's lifeblood — was drying up at a rate of 6 percent annually. The line was running at about 25 percent capacity.

The industry reacted as any industry does when faced with an unfavorable business climate. It looked and spent elsewhere.

The Legislature in 2013 adopted Senate Bill 21, a more fair and reasonable oil tax system that turned much of that around. It brought more oil into production as investment returned. But voters had to go to the polls to save the measure after the left pushed for its repeal.

It paid off. In 2015, average North Slope production was about 501,000 barrels daily. In 2016, that climbed to 514,000, then 526,000 in 2017, and it is estimated production will reach an average of 533, 000 barrels daily this year. In coming years, new fields coming online are expected to stabilize production somewhere in the neighborhood of 500,000 barrels per day. All of that takes investment.

Revenue officials say Tarr's measure this time around could wring another $255 million out of the industry every year. The unanswered questions? How much would the state lose in industry investment and ancillary spending here because of yet another in a long line of tax increases? How would those numbers translate into layoffs and additional economic malaise?

Alaska desperately needs increased oil production to offset soft oil prices — although, yes, prices are approaching $70 a barrel. You might think lawmakers would be trying to find ways to get more oil out of the ground and into the trans-Alaska oil pipeline instead of monkeying around with sure ways to make things worse.

Why not, for once, go with what works?

Paul Jenkins is editor of the AnchorageDailyPlanet.com, a division of Porcaro Communications.

The views expressed here are the writer's and are not necessarily endorsed by the Anchorage Daily News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary@adn.com. Send submissions shorter than 200 words to letters@adn.com or click here to submit via any web browser.

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